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Characteristics of Markets

Economics (Year 11) - Introduction to Microeconomics

Ben Whitten

What is a market?

A market is place where buyers and sellers can meet to exchange and trade goods and services. The key features of a market include:

  • Buyers (to create demand) 

  • Sellers (to meet demand)

  • A good, service or commodity to be bought and sold

  • The price of the commodity

  • Markets must be voluntary, therefore, people can choose whether to participate or not

  • A meeting arrangement for the trade to occur

Features of Market Economies

There are six key characteristics of a Market economy:

Property rights and private ownership: Through contract law and the justice system, private firms have ownership or property rights over resources and goods. In turn, this means that owners are free to sell their property rights to the highest bidder. 

Economic freedom: Markets have a voluntary exchange. Both buyers and sellers are free to participate in the economy if they choose to do so. In this way, producers can sell what they wish to and consumers can purchase commodities as they need or want them. 

Self-interest: Relating to economic freedom, as markets usually offer motivation for both firms and consumers to enter the economy in the hope of making a profit or improve their standard of living. 

Competition: Markets need healthy competition in order to work efficiently. This means that firms with little or no competitors, like monopoly power, must be restricted by the ACCC (Australian Competition and Consumer Commission.)

Moral hazard: This means that to a certain degree, consumers must abide by their financial decisions and accept the consequences of misjudged purchases and spending's. For instance, in contracts, partys enter at their own risk. 

Limited role of the government: The restricted role of the government in mixed market economies allows private ownership and fair competition between firms. The role of the government is to protect property rights, enforce contract law, protect people with no resources to sell and monitor and restrict monopoly power.

Market Economies

A market economy describes a network of separate markets, where goods, services and resources are privately owned and sold based on decisions of owners. Countries such as Australia, US, Japan, the UK and Germany all operate in a capitalist society with 'free market economies. The opposite of market economies are planned economies, where goods, services and resources are collectively owned and sold under the decisions of particular authorities. 

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